What It Measures
Real Retail Sales adjusts nominal retail sales for inflation using the Consumer Price Index (CPI). This provides a measure of actual purchasing power and volume of consumer spending, rather than just dollar amounts.
Formula: Real Retail Sales = Nominal Retail Sales / CPI × 100
This adjustment is critical during periods of high inflation when nominal sales may rise while actual consumption volumes fall.
Why It Matters
True Spending Signal: During high inflation, nominal sales may rise while consumers actually buy fewer goods.Economic Health: Real retail sales growth indicates genuine expansion in consumer activity.GDP Input: Real consumption is a key component of real GDP calculations.Fed Policy: Shows whether consumer demand is truly strong or just inflated by price increases.
How to Interpret
Year-over-Year: Compare to the same month last year to identify genuine trends.Real vs Nominal Gap: If nominal sales rise but real sales fall, inflation is eroding purchasing power.Negative Real Growth: Signals potential recession and consumer stress.Trend Direction: Multiple months of negative real growth is a significant warning sign.
Key Levels to Watch
| Level | Interpretation |
|---|---|
| Above +3% YoY | Strong real spending growth |
| 0% to +3% YoY | Moderate real growth |
| -3% to 0% YoY | Weak or declining real spending |
| Below -3% YoY | Significant real spending contraction |